Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Strategies to Build the Aftermarket Business

BAE Young-Il

Oct. 17, 2013

“Aftermarket” refers to products and services, including maintenance, repairs and replacements, that occur after an initial product sale. Although traditionally regarded as little more than product support and warranty service, aftermarket business is now an attractive market in itself. With businesses increasingly reluctant to invest in new equipment, demand for maintenance and upgrades is set to continue to grow. The market for aftermarket products and services is now four to five times larger than the market for new products, accounting for over 60% of all equipment expenditures.

Aftermarket business is especially appealing to companies dealing in industrial equipment, as it provides higher profits than with equipment sales. Manufacturing firms, moreover, can tap their already existing customer relationships to differentiate themselves from competitors, and pursue growth in an area that is more immune to fluctuations in demand.

Aftermarket products and services are of special interest to Korea’s industrial equipment firms, who face a sluggish domestic economy at home and rising competition from China abroad. Korean firms already have market leading technologies, a wide customer base and extensive experience in high-end equipment, heavy machinery, construction, and shipbuilding. These strengths can enable Korean firms to easily gain a foothold in the aftermarket industry.

Success in the aftermarket industry, however, requires more than just resources and experience. Companies need to learn to treat the aftermarket as an independent business of its own, and not just a subsidiary to initial production. Manufacturers in particular need to change their mindset to focus on meeting customer needs, rather than simply producing products in the hope that someone will buy.